Need cash for IRA deposits? Ask Uncle Sam

Are you short on cash for an IRA contribution this year? Uncle Sam may give you a “loan.”

Strategy: Use your federal income tax refund to fund an IRA contribution. Simply file your 2011 return early, claiming a deduction for the amount you intend to contribute (assuming you are allowed to make a deductible contribution). When you receive the refund, use it to help fund the IRA contribution you deducted on your return.

Is it legal? Absolutely. The IRS approved this taxpayer-friendly technique years ago. (IRS Revenue Ruling 84-18) All you have to do is make the IRA deposit by the April 17 deadline.

The IRA contribution limit for the 2011 tax year is $5,000 ($6,000 if age 50 or older). If you actively participate in an employer retirement plan, the deduction phases out for a modified adjusted gross income (MAGI) between $56,000 and $66,000 for single filers; $90,000 and $110,000 for joint filers. If your spouse is the active participant, the phaseout range is between $169,000 and $179,000 of MAGI.

Tip: The contribution limit for 2012 remains at $5,000 ($6,000 if age 50 or older).